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Plans to sell off the Tote are being put on ice because Gordon Brown is unhappy at the presence of a private equity firm in the management-led consortium bidding to take over the state-owned betting and bookmaking business.

Treasury and culture department insiders have told the Financial Times that the chancellor has blocked approval of the £400m sale to a consortium of racecourse and racehorse owners, Tote management and staff and Lloyds TSB, because he does not want to be linked to private equity in the run-up to the Labour leadership contest.

The highly leveraged bid also involves Lloyds Development Capital, the bank’s private equity arm, which is providing 15 per cent of the deal through a high-yielding payment-in-kind note.

Labour has a long-standing commitment, made in both the 2001 and 2005 manifestos, to privatise the horseracing business. But Mr Brown is concerned the consortium could dismantle the Tote to realise a rapid return.

“The Tote is a national asset that needs to be protected and promoted, in the best interests of racing,” a government insider told the FT. “What we don’t want is to sell it and find, six months from now, that it does not exist.”

Mr Brown’s hold-out against the bid will be seen by some critics as evidence of the way next month’s impending Labour leadership race is affecting policy.

The unions, who control a third of the vote for Mr Blair’s successor, have this year mounted a sustained attack on the private equity sector.

Insiders linked to the Tote bid said Treasury officials were protecting the chancellor ahead of his likely coronation as prime minister.

A close observer of the Tote sell-off said: “The thinking in the Treasury is, ‘could this thing go wrong, and if it did, could it embarrass Gordon?’”

But aides to the chancellor flatly reject any suggestion that such political considerations are colouring his stance on the Tote.

Mr Brown rejected union demands to end tax breaks for private equity firms and has defended the sector. His concerns centre on the nature and structure of the Tote bid, according to an insider, who said: “We want to encourage private equity but this is a particular case.”

Tessa Jowell still hopes to rescue the bid. “The idea it’s dead in the water is just nonsense . . . we’re pretty confident we can find a way forward,” an aide to the culture secretary said.

Richard Caborn, sports minister and prime architect for the Tote sell-off, is meeting Stephen Timms, chief secretary to the Treasury, next week to try to break the impasse between the two departments over the bid.